President Trump frequently champions the idea of confronting major pharmaceutical corporations and revitalizing domestic manufacturing. However, his eagerly anticipated announcement on Thursday, which introduced 100 percent tariffs on imported brand-name medications, appears to offer a significant break to many of the industry’s wealthiest players.
Large pharmaceutical firms, responsible for many well-known brand-name drugs like Botox (manufactured in Ireland) and popular weight-loss medications (produced in Denmark, Ireland, and the United States), already conduct the majority of their manufacturing operations within the U.S. or Europe.
Notably, the 100 percent tariff proposed by Mr. Trump, slated for October 1st, will not affect drugs imported from the European Union. These specific brand-name products from the E.U. are instead likely to face a more moderate tariff of up to 15 percent, a result of a recent trade agreement. The exact implementation date for this lower tariff remains uncertain.
Despite this, major pharmaceutical companies such as Roche, Novartis, and AstraZeneca produce some of their medications in Switzerland and Britain. Since these countries are not part of the European Union, these companies would likely need to commit to relocating some of their production to the United States to bypass the steep 100 percent tariffs.
Countries like Singapore, China, and India, which contribute a smaller portion of brand-name drugs consumed by Americans, could see their manufacturing operations subjected to these higher tariffs.
The initial announcement of these tariffs came via the President’s social media on Thursday evening, leaving many policy specifics ambiguous. An administration official indicated on Friday that a formal proclamation detailing the policy is expected early next week.
While President Trump’s social media post suggested tariff exemptions for companies building new U.S. factories, an administration official clarified on Friday that this waiver would apply only to the specific drugs being manufactured in the United States, not a company’s entire product line.
Companies also have the option to seek temporary tariff exemptions during the construction phase of new U.S. facilities. For instance, a company producing a heart disease medication in Ireland could apply to the Commerce Department for a five-year exemption from the 15 percent tariff if it’s actively establishing a factory in North Carolina for that same drug.
Consequently, many of the pharmaceutical industry’s giants are poised to largely escape the severe 100 percent tariffs, though they will likely soon incur a tariff of up to 15 percent on some European-imported drugs.
These European import tariffs could lead to slight price hikes for certain brand-name medications, potentially increasing out-of-pocket expenses for American consumers.
In a positive development for consumers, the administration official confirmed Friday that older, more affordable generic drugs, which constitute the majority of American prescriptions, will be entirely exempt from both the 100 percent tariffs and the lower European tariffs.
Although a significant portion of drug raw materials originates from China, the tariffs will target later stages of the drug manufacturing process. While India and China primarily produce generic drugs, they also contribute a smaller volume of active ingredients for brand-name pharmaceuticals.
In a preemptive move against potential tariffs, leading pharmaceutical companies have already invested billions of dollars into constructing and expanding their manufacturing facilities within the United States.
Major players, including Johnson & Johnson, Eli Lilly, Merck, Gilead Sciences, Roche, GSK, AstraZeneca, and Novo Nordisk, have recently initiated construction on new factories across various U.S. states, including North Carolina, Indiana, Delaware, California, Pennsylvania, and Maryland.
Reflecting the sentiment, analysts at Jefferies, a prominent Wall Street bank, stated on Friday that they view these tariffs as “a win for Pharma.” Following the announcement, major drugmaker stocks saw little change or a modest increase.
For several months, President Trump’s rhetoric regarding drug tariffs sparked widespread concern among American patients, who feared soaring prices and critical drug shortages. However, given the significantly scaled-back tariffs announced Thursday, the actual impact on many popular and widely-used medicines remains uncertain for consumers.
Conversely, these tariffs could disproportionately affect a different segment of the industry: smaller manufacturers of brand-name drugs. Many of these lesser-known companies produce medicines in Canada, Mexico, or the Middle East and lack the financial capacity to invest billions in establishing new U.S. production facilities.
John Crowley, president of the Biotechnology Innovation Organization, an industry trade group representing both biotech firms and major drugmakers, issued a statement indicating that the tariffs would specifically impact “small and mid-sized” companies.
Industry experts have expressed apprehension regarding potential market disruptions and increased prices for specialized, lesser-known products from smaller overseas manufacturers who cannot afford to establish new factories in the U.S.
Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School and Brigham and Women’s Hospital, noted, “It’s likely that the companies that will be affected are certain smaller companies that are making more niche products. That could be problematic for those particular patients.”
While large pharmaceutical companies enjoy substantial profit margins from blockbuster drugs such as Merck’s cancer medication Keytruda, the same isn’t always true for smaller firms. A 100 percent tariff could force a company manufacturing its brand-name product in Canada, Mexico, or the Middle East to halt sales or divest the drug to another entity.
Dr. Kesselheim further elaborated that a “smaller niche brand-name drug that does not have as high of profits as the Keytrudas and GLP-1 drugs of the world might feel more pressure.” He warned of the potential for such tariffs to cause “shortages and disruptions in the supply” of these essential medications.
For a smaller brand-name company unable to absorb a sudden 100 percent tariff, the path forward is stark.
John Maraganore, former CEO of Alnylam Pharmaceuticals and a past chair of the Biotechnology Innovation Organization, explained, “You have to account for these tariffs and raise the price. Especially if it’s a single product company that depends 100 percent on that one product, that’s what you naturally do, which of course doesn’t help the American consumer.”
Peter Kolchinsky, a biotechnology investor based in Boston, voiced concerns that Mr. Trump’s tariffs “might leave smaller American biotech companies at a huge disadvantage to big multinationals.” He expressed hope that “the final language gives them time to contract to build in the U.S. or we’ll lose a lot of American jobs in innovation.”
The pharmaceutical industry boasts a robust and influential lobbying presence in Washington. Prior to the tariffs, the industry actively advocated for and successfully obtained exemptions, similar to those included in Mr. Trump’s Thursday announcement.
Despite these concessions, major drugmakers still face significant challenges from the Trump administration. Earlier on Thursday, the administration indicated intentions to compel pharmaceutical companies to align U.S. drug prices with lower European rates. Officials have also discussed implementing regulatory changes that could ban drug advertisements from television.
Even with their substantial investments in new U.S. manufacturing plants, large pharmaceutical companies have no intention of ceasing overseas production for many of their drugs. Maintaining a presence in Europe, a crucial market, remains important to them. These new policies, paradoxically, could save them billions of dollars in what they had anticipated would be significantly higher pharmaceutical tariffs.